The Great Marketing Roulette The Great Marketing Roulette

Ashutosh Sinha, IMRB International

Balendu Shrivastava, IMRB International

What is common in . . . What is common in . . .

Subsidized cost for Subsidized cost for razors but high cost razors but high cost

for bladesfor blades

Non Digital Non Digital Cameras - low Cameras - low

cost of cameras cost of cameras but high cost for but high cost for

films films

CDMA Phones - CDMA Phones - low cost handsets low cost handsets

but high tariffsbut high tariffs

Machine Machine Repellants – low Repellants – low cost Machine but cost Machine but high priced refillshigh priced refills

What is the advantage for marketers?What is the advantage for marketers?

• Consumer paying lower initial value – thus penetrate a larger market

• Assured revenue stream once the product is penetrated

But,But,

• Are they pricing it right?

• Is there a revenue loss due to lower product price or higher supplies price?

• Would new brand variants cannibalise or pull consumers from competition?

The Roulette and Marketing!!!!!The Roulette and Marketing!!!!!

√√They might lose everything

√√Pump money behind it!!

√√Poses faith on an assumed combination

√√Guesses a combination of numbers

GamblerGambler

√√

√√

√√

√√

Dual Dual Revenue Revenue Stream Stream

MarketersMarketers

Limited usageLost Revenue Lost Revenue OpportunityOpportunity

DisasterDisasterLower product Lower product penetrationpenetration

Just Just RightRight

And what could be the ramificationsAnd what could be the ramifications

High

High

Low

Low

Pro

du

ct P

rice

Pro

du

ct P

rice

Supplies PriceSupplies Price

In effect, arrive at a best possible combinationIn effect, arrive at a best possible combination

Product

Product

Product

Supplies

Supplies

Supplies

A Printer Case StudyA Printer Case Study

Pro

du

ct Price

Pro

du

ct Price

Su

pp

lies Price

Su

pp

lies Price

Introducing the charactersIntroducing the characters

Rs. 10,000 Rs. 50 p.a.

Rs. 2,500 Rs. 3,600 p.a.

Dot Matrix PrintersDot Matrix Printers

Ink Jet PrintersInk Jet Printers

Research ProblemResearch Problem

• The client HP, a leader in IJP space with a 50%+ market share

• Sound dual stream revenue model– High product penetration– High supplies price

Product Prod

uctProduct

SuppliesSuppli

esSupplies

• Smart Indians!

Given this the client wanted toGiven this the client wanted to

Decide on price of a printer and Supplies so that:Decide on price of a printer and Supplies so that:

• Maximize revenue– ensure minimal cannibalisation– maintain/improve market share

In effect, the decision points are aboutIn effect, the decision points are about– Price and Features for the Ink Jet Printer– One printer or more than one model– Price for the Black Cartridge– Price for the colour cartridge

Generalized Solution for Dual Revenue Stream Generalized Solution for Dual Revenue Stream Product Pricing ResearchProduct Pricing Research

• Can I charge more for the product?– By adding value added features OR– By reducing the price of supplies

• Can I get more revenue by lowering the price of supplies?– Will I get enough mileage by reducing price OR– Should I use a combination of reduced price and lower costs (by reducing

yield)

• Qualitative research to identify opportunity areas in - Enhancing value by adding features- Enhancing profitability by dropping “performance” level

• Converting value propositions into tangible choice cards (using orthogonal design)

• Customised Choice Modelling and Traditional Conjoint Design

• Revenue Simulator for the entire product life cycle

The Research SolutionThe Research Solution

• Customised Choice Modelling– Answering the basic “what if” questions– What printer– What price– Price and features of cartridges

• Traditional Full Profile Conjoint– Identify “importance” of features– Identify utility values associated with features– Optimum product combination– Internal validation for the choice modelling

Evolving the Value ParadigmEvolving the Value Paradigm

• Evolved the following features for printers:– Speed of the printer (pages per minute)– Printer Warranty (number of years)– Life of the Printer (number of pages)– Printer Resolution (dpi)

• Only two variations for the cartridges– Quantity of ink in the refill cartridge – Quality of print out (actual print out comparison)

Identifying Price Ranges and Value Identifying Price Ranges and Value AssociationsAssociations

• Quali research conducted amongst the segments of interest:– Households (owners and

intenders)– Micro-businesses and

Small Businesses

– Including those buying genuine and ‘refillers’

HOUSEHOLDS SMBMICROBIZ

MEDIUM

Product

Supplies

Product

Supplies

Supplies

Product

IMPORTANCE

• Printer Price Range– Rs. 2,500 to Rs. 6,000

• Cartridge Price Range– Rs. 75 to Rs. 500

Value EnhancementsValue Enhancements

Value EnhancementsValue Enhancements

Multiple Functions – Scanner, Fax, Copier

Long Lasting PrintersMore number of pages

per cartridge

Longer warranty period

Nothing too different from our initial brainstorming sessionNothing too different from our initial brainstorming session

Attributes and levels in the modelAttributes and levels in the model

AttributeAttribute LevelsLevels ExamplesExamples

Printer AttributesPrinter Attributes

1. Brand 5 HP, Epson, Canon, Samsung, HCL

2. Black Cart. Price 5 Rs. 280, 380, 520, 660, 800

3. Hardware Price 8 Rs. 2400, 3000, 3500, 4000, 4500, 5500, 6700

4. Warranty 3 1 year, 2 years, 3 years

5. Printer Life 2 30000 or 60000 pages

6. Speed 3 10 ppm, 20 ppm, 30 ppm

7. Resolution 3 1200 dpi, 2400 dpi, 4800 dpi

Cartridge AttributesCartridge Attributes

1. Quality 2 Regular (Normal), Everyday (Inferior)

2. Yield 3 250 pages, 450 pages, 600 pages

3. Genuineness 3 Refill / Original / Local

4. Type 2 Colour / Black

Traditional Booklet 12Traditional Booklet 12

Scenario 48Scenario 48

I will buy another printer

I will not buy a printer

HCL’s medium size Inkjet printer, suitable for all kinds of office. Can also be used by homes.

Rs. 3,500/-

Rs. 660 / 800Cartridge Price(Black/Color)

2 yearWarranty

60,000 pagePrinter Life

1200 dpiResolution

20 ppmSpeed

1

2

3

Traditional Conjoint Product CardsTraditional Conjoint Product Cards

The final utility values plotted on Excel PivotThe final utility values plotted on Excel Pivot

Inkjet Booklet 1

Scenario 73Scenario 73

I will buy another printer

I will not buy a printer

5

6

Epson’s compact Inkjet printer. Ideal for home &

small office use..

Rs. 2,500/-

3

Rs. 400/ 650Cartridge Price(Black/Color)

3 yearsWarranty

30,000 pagePrinter Life

2400 dpiResolution

20 ppmSpeed

Canon’s compact Inkjet printer. Ideal for home &

small office use..

Rs. 3,000/-

1

Rs. 400 / 650Cartridge Price(Black/Color)

1 yearWarranty

30,000 pagePrinter Life

4800 dpiResolution

10 ppmSpeed

HP’s compact Inkjet printer. Ideal for home &

small office use.

Rs. 2,400/-

2

Rs. 660/ 800Cartridge Price(Black/Color)

1 yearWarranty

30,000 pagePrinter Life

4800 dpiResolution

10 ppmSpeed

Card 2Card 2

The Customised Choice ModelThe Customised Choice Model

• Created choice tasks for printers

Office Booklet 1Office Booklet 1

Scenario 4Scenario 4

I will buy some

other cartridge

1

Original

Regular

Rs 800Price

600 pagesYield

Original

Regular

Rs 400Price

250 pagesYield

Local

Rs 80Price

250 pagesYield

Refill

3 5 6

7

Rs 520Price

250 pagesYield

BLACK CARTRIDGE

The Customised Choice ModelThe Customised Choice Model

• Similar cards created for Cartridges

Building a modelBuilding a model

• A multinomial logit model fitted to the results from choice tasks

• Model was run on aggregate data for a scenario, with alternate specific effects

• More than 20 models were analysed taking into account printer, colour and black cartridges in three segments (Homes, Microbiz and Medium Sized business)

Developing the Revenue SimulatorDeveloping the Revenue Simulator

• Results were summed up in a revenue simulator based on multinomial logit analysis

• Enabled the client to examine impact on volumes, market share and revenue

• Was able to examine some complex scenarios

• For example

Revenue SimulationRevenue Simulation

Less money per transaction

(-20%)

Hi Share as compared to

refills(30%)

20% drop in price of black cartridge

Increase the share of printer

(+10%)

Increase the volume of

cartridges used(+10%)

Net gain in revenues over 44 months(+20%)

4 sheets for the client with 4 sheets for the client with minimal clicks minimal clicks

(80 sheets working silently behind)(80 sheets working silently behind)

Increase H/W Price

Competition reaction

Shift in market share

Revenue share

Revenue SimulatorRevenue Simulator

Assumptions SheetAssumptions Sheet

Input sheetInput sheet

• Listed down assumptions • E.g.

– Printer sales are not seasonal

– Printers have a life of 44 months

• Allowed the client to create three scenarios.

• Current market scenario and the printer that they would like to introduce.

Revenue SimulatorRevenue Simulator

Result SnapshotResult Snapshot

Detailed Revenue SimulationDetailed Revenue Simulation

• “Test” models in actual marketplace.

• Conduct what-if analysis• Aggregated segments to

view the entire market in one go

• For the 3 scenarios• Printer Share• Printer Volumes (for the current year)• Hardware Revenue (for the current

year)• Cartridge Volume (Next 44 months)• Cartridge Revenue (Next 44 months)

EndnoteEndnote

• Simple problems may require complex designs but they need to offer simple and workable solutions

• A research is effective only when it is utilised

• Clients need not get lost behind complex mechanisms and make use of it to the extent possible

Client’s citationClient’s citation

In the words of Abhijit Patwardhan, Director – Marketing, Asia Pacific and Japan, HP Asia Pacific Pte Ltd.

“It is a very powerful tool for us to run financial scenarios and market simulations. Partially, we applied our business feel onto it. The volumes turned out to be lower than forecasted by a small margin (15%). The project still delivered on our estimates and is being deemed a success.”  

Portability of the toolPortability of the tool

• As more and more marketers move into “servicing” clients than selling “products”, the need for optimum pricing research would only grow

• This is probably the most complex example for dual revenue stream product categories

• The other categories would not have as many features and hence, lesser choices for the consumers

The complexity for other categories may be The complexity for other categories may be less … but the fun would still be thereless … but the fun would still be there

Thank You!Thank You!